US-Europe trade pact as a buffer against China

President Barak Obama’s call for a free-trade agreement between the United States and the European Union has caused optimism on both sides that a breakthrough can be achieved that would enhance trans-Atlantic fortunes economically and politically.

Perhaps, the greatest consideration was the growing economic might of China.

Obama is also mindful of leaving a lasting legacy after him—the so-called a 21st-century version of liberalism that could outlast his tenure. The current signs of a frayed union across the Atlantic seemed easing. Many see that an US-Europe agreement might be reached now, where past efforts have failed.

Claudia Schmucker, head of the globalization and world economy program at the German Council on Foreign Relations predicted that this may be the first time in 20 years where something can happen.

Comprehensive trade agreement

Proponents of a comprehensive trade agreement believe that economic growth and eventual lower prices for European and American consumers would be the impetus to a relationship that has lacked gravitas almost for five decades. Talks could begin in late May or early June.

Some of the thorny issues to be ironed out are Negotiations are protected sectors of the agriculture industry within their subsidies and preferences, preference for genetically modified crops that are commonplace in the United States and a common front against competition from China.

Obama’s announcement had a fair chance for being debated seriously by leading politicians and business groups in Europe. There was no noticeable opposition in many places especially Germany. There is economic stagnation on both sides of the Atlantic has heightened the awareness that growth is vital. Free-trade agreements are much easier to reach with higher-wage, unionized countries like those in Europe that do not spook trade unions.

There has been substantial cross-pollination between American and European companies, as in the auto sector, that would augur well for a pact.

Chinese presence

China may present be the most compelling factor for cooperation. Unless USA and Europe cooperate it would virtually impossible to overcome Chinese competitiveness. Obama administration is optimistic that a deal may see the light of day in as little as 18 months — before the terms of the current European commissioners end. Even so, trade experts with experience from previous rounds say they are acutely aware of how often negotiations begin with optimism and grand plans and end with intractable fights between vested interests.

Obama just had one line in his State of the Union on this matter but the hones were ringing overnight. His statement set in motion the need for talks to remove tariff barriers and regulatory hurdles between the United States and the European Union, which is already each other’s largest trading partners.

Renewing TAFTA

Obama called for a Transatlantic Trade and Investment Partnership, something like what Bill Clinton had under the name TAFTA, something like a sequel to the NAFTA deal with Canada-US and Mexico.

It was later revealed that a high-level working group has spent most of a year discussing whether the talks would cover just tariff issues, or also regulatory questions on environmental, pharmaceutical and automobile industry issues. It looks clear that Obama administration anticipated the optimism among Europeans for anything that looks like a growth strategy. They may even be ready to take on some of the more difficult issues like agriculture.

Tariffs on goods traveling between the United States and Europe averaged about 3 percent, but proponents say that the savings from eliminating duties would still be significant because the volume of trade is so enormous. Trade in goods between Europe and the United States totaled $646 billion last year, according to United States government figures.

Recently, two powerful American senators mentioned the need to open Europe to American farm products. They were ready to sign off on any agreement to help the farmers. Max Baucus, Democrat of Montana, who is chairman of the Senate Finance Committee, and Orrin G. Hatch of Utah, the highest-ranking Republican on the committee, wrote that a trade deal presented an “enticing opportunity” in a letter to Ron Kirk, the United States trade representative.

Push from Europe

European leaders, including Prime Minister David Cameron of Britain and Chancellor Angela Merkel of Germany, has openly talked about trade deal to stimulate their struggling economies. The United States Chamber of Commerce and large companies like General Electric have given their blessings to the idea...

Smoothing the regulatory oversight on products like food, cars, toys and pharmaceuticals seemed over due... Automobile manufacturers have constantly called for agreement on safety and emissions standards for cars, reducing or eliminating the need to build different versions for the American and European markets.

There is general agreement that harmonizing safety features of cars would save several hundred dollars per automobile, vital leverage over emerging powerhouses like China.